Channel 4: Fears Privatization Could Be Revisited As UK Broadcaster Exposed By Brutality Of Coronavirus Crisis

There are concerns bubbling up in the UK television industry that Boris Johnson’s government could revisit the issue of privatizing Channel 4 after it has been left exposed by the brutality of the coronavirus pandemic. Channel 4 has been stunned by the sudden advertising downturn and industry sources have said that this could prompt the government into reconsidering plans to sell the broadcaster — an idea it entertained as part of an 18-month review in 2016.

Channel 4 has been government-owned since its inception in 1982 and plays a unique role in the British broadcasting ecology by funneling its revenue into the independent production sector. But more than 95% of Channel 4’s near £1B ($1.2B) in revenue is from television and digital advertising, meaning it is particularly vulnerable to the shifting sands of the ad market. ITV, by contrast, has a production arm generating half its revenue, while Sky has subscription income.

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Enders Analysis, the revered British media analyst, said in a report this week that the broadcasting sector faces a “very bleak future,” in large part because of the “unprecedented” impact coronavirus has had on the advertising market. With travel and transport firms ripping up their marketing budgets, the consequences of these decisions are yet to be fully understood, but Enders suggested the market could be down by as much 40% between April and June.

The Enders forecast echoed an estimate published by The Guardian over the weekend, while sources close to Channel 4 worry that the market could have plummeted even further, with one pegging a worst-case scenario at 70%. Either way, Channel 4 is not built for such dramatic downswings — particularly at a time when it has spent more than £50M of its £180M cash reserves on relocating out of London.

The Steph ShowChannel 4/Expectation

Publicly, the broadcaster is extolling its public service credentials with clever “Lockdown Academy” coronavirus documentaries and the newly-launched daily show The Steph Show. Viewing is up significantly on TV, with shows including Friday Night Dinner and The Great Celebrity Bake Off scoring their best-ever audiences, while streamer All 4 is enjoying record engagement. But behind the scenes, Channel 4 is drawing up a plan to significantly cut program budgets, slash executive pay and dip into its emergency £75M credit facility. The cost-cutting strategy will be outlined later today during an all-staff conference call.

“Channel 4 will need to shrink their cost base, and fast,” Enders said, estimating that the company would only be able to sustain its current operations for eight months if the ad market is down 40%, and less than five months if the downturn pushes past 65%. “If the ad market is down 50%, then everyone has got a problem,” added an ad industry expert.

It’s in this febrile environment that sources think the government might entertain different options for Channel 4 so that it does not become another liability on the books of the Treasury, which is already plowing billions into shoring up the British economy.

One well-placed person suggested the sale of Channel 4 represents “unfinished business” for John Whittingdale, the culture minister. Whittingdale put privatization on the agenda when he was culture secretary four years ago and Channel 4 mounted a spirited campaign against the idea, saying it was a “solution in search of a problem” and could chip away at its public purposes. The government’s 18-month review ultimately culminated in the Channel 4 being asked to move out of London.

“Whittingdale can now, under the cover being concerned about Channel 4’s stability, entertain alliances which were probably not appropriate,” the source said, adding that the government is having to make seismic decisions about the country’s future on an almost hourly basis. A second person said there are rumors at Channel 4 that the government is already engaged in these conversations, to the point where ministers may have even sounded out potential buyers. This was downplayed by a third source, however, who said no privatization talks have taken place internally or with then government.

The Department for Digital, Culture, Media and Sport did not comment when contacted by Deadline, but it is understood that it has “no current plans” to sell Channel 4. Some might observe that Whittingdale used a similar refrain to describe the government’s position on privatization back in 2016.

John WhittingdaleShutterstock

There are counter views to the privatization whispers. One person pointed out that the Treasury will recognize that Channel 4 had a strong balance sheet and “sensible” management right up until coronavirus wreaked havoc on the economy. “They will know that right up until the crisis, Channel 4 was not an institution that was about to go bust,” they said

John McVay, the CEO of producer trade body PACT, added that it would simply not be a good time to sell. He said: “You can see why people might be whispering about Channel 4 privatization, but what sort of money would you get for it right now? The government has got a duty to get a good return for the public. It might not be a very smart thing to do for the taxpayer.”

McVay would like Channel 4 and the BBC’s borrowing limits to be increased to help propel the industry out of COVID-19 chaos. Enders also pointed out that Channel 4’s ability to raise debt is “constrained” at a statutory limit of £200M. “The BBC and Channel 4 need to go big,” McVay said. “You want the BBC to invest through the licence fee and for Channel 4 to have enough money to do things properly, making shows with ambition and reach to bring back advertisers.”

Enders suggested other ways of helping Channel 4 through the crisis, including temporarily relaxing “costly programming quotas.” This could involve lowering the bar for originals and softening targets for nations and regions spend. “If that is what it will take to ensure the broadcaster’s viability then it is necessary,” Enders said. “Without a healthy broadcasting sector — including a functional Channel 4 — the production market suffers.”